How to control the multinationals: A Question and a response;

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HOW TO CONTROL THE MULTINATIONALS
A Question and a Response
By GEORGE W. BALL
Senior Partner, Lehman Brothers
How legitimate is the power of a multinational company to
make decisions that have a measurable impact on the eco­nomic
life of the foreign countries in which it does busi­ness?
Can a national government be expected to sit calmly
while an absentee corporate management 5,000 miles
away is able, by its decisions, to affect the prosperity over
which that government presides?
We solved this problem of legitimacy within the United
States by interpreting federal regulations to govern the
practices of a Delaware company, for example, whether
it be operating in Texas, Wisconsin, or in its own jurisdic­tion.
In other words, we provided an overall central au­thority.
But when a multinational company operates away
from its country of domicile, there is no international au­thority
to which it must be accountable. Governmental
intervention at the local level offers no solution, since it
usually impairs the ability of the company to deploy its
resources freely. Yet, when either a domiciliary or a host
government tries to extend its jurisdictional reach beyond
its own boundaries, conflict and confusion is inevitable.
I suggested in London seven years ago that we give
thought to creating an international authority with the
power to issue charters that would effectively denational­ize
our world companies—charters under which corpora­tions
would become accountable to an international com­mission
charged with the enforcement of an international
companies law. By accepting such accountability, the in­ternational
company would gain the protection of certain
explicit constraints that would define the power of sig­natory
states to interfere with its operations.
This was a far-out suggestion intended not for today but
for the day after tomorrow. I had nothing more in mind
than to inject one more idea into the teeming marketplace
of theory and controversy. Certainly, what I proposed was
not the only way to approach the emerging predicament.
But, sooner or later, we shall have to come to grips with
this question—before nation states impose their own solu­tions
at the local level. For that way lies chaos. The unique
genius of the multinational company depends on the inter­national
mobility of all factors of production. Restrictions
or conditions unilaterally imposed by national govern­ments
can only destroy the special values that such a com­pany
offers. Yet we will pay a heavy price if we do not find
a way to safeguard those values—because the multinational
company, as it is now developing, is quite clearly the best
mechanism anyone has so far suggested for utilizing all of
the world's resources efficiently.
That is a point even the most xenophobic among us can
no longer afford to overlook. At a time when we are to
understand that the world's raw material reserves are
shrinking, we had better do whatever is necessary to pre­serve
the multinational company as an instrument for effi­ciently
using our finite stock of resources. Otherwise, we
risk a Malthusian debacle on a global scale.
By HERBERT C. KNORTZ
Executive Vice President and Comptroller, ITT
The case for control of the multinational corporation ap­pears
to have been pre-judged and erroneously concluded.
Indeed, one wonders whether "control" is the proper
medicine for the patient in question. However, if we as­sume
that control is essential, in what form might that con­trol
become operative? There are several possibilities:
a) National Rigidity. The host country would look upon
a multinational corporation as a second-class citizen, and
through such restrictions as tariff walls, credit penalties,
labor union constraints, and industry limitations force out
all but the most efficient multinational practitioners.
b) National Tolerance. It is possible to conceive a form
of control that would treat a multinational corporation as
a complete citizen of the host country. The multinational
"country of origin" would not follow its corporate citizens
into new areas of the world. Multinational corporations
would probably like to operate in this atmosphere.
c) Expanded Supervision. Under this concept, rules and
regulations would be established by groups of trading
partners, as illustrated by the European Economic Commu­nity.
The difficulty is that the regional groups derive power
only to the extent that their regulatory desires are duly
supported and legislated by the national members.
d) Preliminary Review. A multinational seeking to enter
a country or a line of business within a country would be
required to submit its approaches to a reviewing agency
for approval—such as in Canada and Argentina.
e) Control by Penalty. The multinational would be on
record with a specific program covering such items as the
number of employees, a relationship between sales price
and government price indices, and the maintenance of
specific capital ratios. Escrow bank deposits could insure
the availability of penalty remittances.
Actually, there is some evidence that it is not that the
multinational corporation is unnaturally large, but rather
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